ASSESSMENT OF THE EFFECTS OF INFLATION RATE ON SHARE PRICE

Abstract

This study focused on examining the effect of inflation on share price in Tanzania Breweries Limited (TBL). The observation ranges from 2000 to 2020. Secondary data were used in this study, where inflation, interest rate and GDP were drawn from National Bureau of statistics (NBS) and bank of Tanzania (B.O.T) and share price of TBL was drawn from Dar es salaam stock exchange (DSE). This study is considered reliable since, Comparative analysis of notions and approaches were used in this study to evaluate the effect of inflation on share price in TBL. Simple regression analysis was used in order to evaluate the effect of inflation on share price. In testing the regression analysis, coefficient of correlation was established in order to show the existence of relationship between inflation and share price, and to describe such relationship between inflation and share price. This study adopts descriptive statistics deemed very helpful in establishing an opinion about the behavior of time series; correlation analysis is described to identify correlation between inflation and share price. Unit root is the standard way to test stationarity of data by using augmented dickey fuller (ADF) test. This study also tested for heteroscedasticity using Breuch Pagan/Cook-Weighberg test, it tests whether the variabce of the errors from regression is dependent on the values of the independent variables. By using multicollinearity test, the test results showed that there was no perfect linear correlation between variables. Furthermore, the study was able to draw a conclusion on the effects of inflation to TBL share prices since inflation rate has a negative relationship with the share price. From the conclusion, when inflation rate increase share prices falls and when inflation rate decreases, share prices increases. Therefore, the researcher recommended that, the government should use its monetary policy to ensure that it maintains the levels of inflation rate,and GDP in the country as they impact highly on share price and stock market at large.